Professor Matt Allen Explains How to Successfully Pass Family Businesses to Next Generations

Professor Matt Allen, director of the Ward Family Business Center at Northwestern University's Kellogg School of Management, specializes in the complex challenge of transferring family business leadership to successors who did not build the enterprise. Drawing from his personal experience growing up in a family business and decades of research, Allen will be the keynote speaker at Globes' Family Business Conference on September 3.

Allen challenges the old adage that the third generation ruins family wealth, noting that family businesses generally have higher survival rates than non-family firms. He highlights that academic definitions of "family business" often fail to capture realities, especially in entrepreneurial sectors where businesses are sold and new ventures launched with the original capital, which may be misclassified as failures.

He stresses the importance of early preparation for succession, setting clear rules for choosing heirs, and separating ownership from management decisions. Allen warns that fear of failure among successors can lead to overly cautious management, causing missed growth opportunities and ultimately harming the business. He contrasts Rupert Murdoch's contentious succession at News Corp with Warren Buffett's smooth, trust-based transition at Berkshire Hathaway to illustrate different approaches.

Allen also notes cultural differences, with U.S. family businesses focusing on rapid growth and financial returns, while European firms emphasize heritage and community impact. Regarding Israeli family businesses, he points out their resilience amid security challenges due to their long-term perspective.

He advises that succession should be a gradual process involving mentorship rather than a single event, and that families must establish governance structures early to avoid conflicts. When successors are unfit, Allen acknowledges the difficulty in preventing owners from passing control to them but suggests objective evaluation mechanisms to mitigate risks. Ultimately, he urges founders to involve their families in decision-making early to emotionally engage the next generation and ensure continuity.

Summary: Professor Matt Allen of Northwestern University discusses strategies for successfully transferring family businesses to the next generation, emphasizing early preparation, clear governance, and overcoming fear of failure. He contrasts different succession models and highlights cultural and regional factors affecting family business longevity and resilience.

Points: 1. Family businesses often survive longer than non-family firms despite myths about third-generation failure. 2. Early preparation and clear rules for succession are critical to business continuity. 3. Fear of failure among successors can hinder growth and lead to missed opportunities. 4. Warren Buffett's gradual, trust-based succession contrasts with Rupert Murdoch's contentious transition. 5. Israeli family businesses show resilience due to long-term perspectives amid security challenges. 6. Founders should involve their families early to emotionally engage successors and ensure smooth transitions.

Topic: economy israel_relevant: true entities: {"people": ["Matt Allen", "Rupert Murdoch", "Warren Buffett"], "organizations": ["Northwestern University", "Kellogg School of Management", "News Corp", "Berkshire Hathaway", "Globes"], "places": ["United States", "Europe", "Israel", "Salt Lake City", "Chicago"]}